When the Owner of a Firm Sells "Recession Insurance" to Her

question 59

Multiple Choice

When the owner of a firm sells "recession insurance" to her employees, it means that the:

• A) employees sacrifice larger bonuses during good economic times in return for higher salaries during bad economic times.
• B) owner of the firm earns higher profits during bad economic times by skimming off the workers' salaries.
• C) employees are not allowed to quit the firm for higher pay during good economic times.
• D) employees are not allowed to quit the firm during bad economic times.

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Definitions:

NPV

Net Present Value, a method used in capital budgeting to evaluate the profitability of an investment by comparing the present value of its cash inflows to the present value of its cash outflows.

Payback Period

The amount of time it takes for an investment to generate an amount of income or cash equivalent to the cost of the investment.

Discount Rate

The interest rate used to determine the present value of future cash flows, guiding investment and financing decisions by reflecting the opportunity cost of capital.